California Severance Agreements: What to Know Before You Sign
When your job ends, an employer might offer you a severance package. It sounds like a safety net. But severance agreements come with strings attached—and in California, you need to understand exactly what you’re signing away.
Many employees sign severance agreements without fully grasping the implications. You might be giving up your right to sue for discrimination, wage theft, or wrongful termination. California law provides some protections, but not as many as you might think. This guide walks you through what severance agreements actually are, what you can and cannot waive, and how to negotiate terms that protect your interests.
What Is a Severance Agreement?
A severance agreement is a contract between you and your employer. In exchange for severance pay (money paid after your job ends), you agree to release most of your legal claims against the company.
Think of it as a trade. The employer says: “We’ll give you three months of pay, but you can’t sue us for anything that happened during your employment.”
Here’s the catch: severance is not legally required in California. Your employer can let you go without offering anything unless your employment contract or union agreement says otherwise. But when they do offer severance, the agreement that comes with it dramatically changes your rights.
What You’re Actually Giving Up
The most important part of a severance agreement is the release of claims. This section typically asks you to waive your right to sue over:
- Discrimination (based on race, gender, age, disability, religion, or other protected characteristics)
- Harassment (sexual harassment, bullying, hostile work environment)
- Retaliation (firing you for reporting illegal activity)
- Breach of contract (violations of your employment agreement)
- Wrongful termination (firing you for an illegal reason)
- Defamation (the employer made false statements about you)
If you sign away these claims, you generally cannot sue later, even if you discover new evidence after signing. This is why the decision to sign matters so much. Many employees don’t realize the full scope of what they’re giving up until months later when they want to pursue a claim but find themselves blocked by the severance agreement they signed.
For example, imagine you discover three months after signing that your employer systematically underpaid women in your department. If you’ve signed a broad release, you may have waived your right to recover that back pay, even though you have clear evidence of the violation.
Key California Protections for Severance Agreements
California law imposes strict requirements on severance agreements to ensure they are fair and that you truly understand what you’re giving up.
The Five-Day Review Period
California requires employers to give you at least five business days to review a severance agreement before you sign it. This gives you time to read the terms carefully.
You don’t have to use all five days. You can sign earlier if you want to. But the employer must offer this window.
The clock starts when your employer hands you the final, complete agreement. If the employer makes material changes to the offer after that, the five-day period starts over.
The Right to Consult an Attorney
Your employer must tell you that you have the right to talk to a lawyer about the severance agreement. Some agreements explicitly state this. Others mention it in a cover letter.
This is a critical protection. Employment law is complex, and an attorney can help you understand what you’re waiving and whether the severance package is reasonable for your situation.
The OWBPA Rules for Age Discrimination Claims (If You’re Over 40)
The Older Workers Benefit Protection Act (OWBPA) is a federal law that creates extra protections if you’re age 40 or older.
Individual Terminations:
If you’re being terminated individually and you’re over 40, the employer must give you 21 calendar days to review the severance agreement before signing. The employer cannot shorten this period.
Group Terminations (Layoffs):
If multiple employees are being terminated in a group (even if the group is announced at different times), employees over 40 must be given 45 calendar days to consider the agreement.
Revocation Period:
After you sign, you have 7 days to change your mind and revoke the agreement. The employer must tell you about this right, and you should do it in writing if you decide to revoke.
These timelines are strict. If the employer fails to follow them, the waiver of your age discrimination claims is not enforceable.
“Silenced No More” Protections (SB 331)
California’s “Silenced No More Act” (SB 331), effective January 1, 2022, bars employers from silencing workers through severance agreements in certain situations:
- You cannot be required to sign a nondisclosure agreement preventing you from reporting illegal workplace conduct
- Sexual harassment and discrimination lawsuits cannot be confidentialized in severance settlements
- You retain the right to report crimes to law enforcement
Even if your severance agreement includes a broad confidentiality clause, these protections override it.
What You Cannot Waive (No Matter What the Agreement Says)
California law prohibits waiver of certain claims, even if the severance agreement includes language trying to waive them. Understand what remains protected:
PAGA Claims (Private Attorney General Act)
You cannot waive your right to file a PAGA claim, which is a representative action where you sue on behalf of California employees suffering similar violations. If your employer violated labor laws affecting multiple workers, you have the right to pursue that claim as a representative of the state.
Many severance agreements try to waive PAGA claims anyway. Courts have found such waivers unenforceable and have struck down entire severance agreements that included unlawful PAGA waivers. This is a huge protection because PAGA claims can result in substantial penalties for wage and hour violations—often far exceeding what individual employees lost out on. The penalties go to the state and injured workers, creating powerful incentives for employers to comply with labor laws in the first place.
For example, if your employer failed to provide proper meal breaks to dozens of employees, a PAGA representative action could recover penalties for all affected workers, not just you alone.
Unpaid Wages and Wage-and-Hour Claims
You cannot waive claims for unpaid or underpaid wages, including:
- Minimum wage violations
- Overtime pay owed to you
- Missed meal and rest breaks
- Improper wage deductions
If your employer owes you money under California labor law, severance cannot strip away your right to recover it. However, employers often dispute what’s actually “owed,” so this gets complicated in practice.
Unemployment Insurance Benefits
You cannot waive your right to file for unemployment benefits after losing your job. Severance agreements sometimes include language trying to prevent this. That language is unenforceable.
If you qualify for unemployment benefits (because you were laid off, for instance), you can still claim them even after signing a severance agreement.
Workers’ Compensation Benefits
You cannot waive your right to workers’ compensation benefits for workplace injuries or illnesses. This applies whether the injury occurred before or after the severance agreement is signed.
The Right to Report Crimes
You cannot waive your right to report criminal conduct to law enforcement or government agencies. This includes crimes committed by your employer or co-workers.
Common Pitfalls in Severance Agreements
1. Overly Broad Confidentiality Clauses
Some severance agreements try to make you keep everything confidential—the amount of severance, the reason for your termination, even the existence of the agreement itself.
California law permits confidentiality clauses, but they cannot prevent you from discussing your severance terms with a lawyer, accounting professional, immediate family, or a doctor. They also cannot silence you about illegal conduct.
2. Non-Disparagement Clauses
These clauses say you cannot say negative things about the company or its leaders. Courts often enforce these, but they have limits.
A non-disparagement clause cannot prevent you from truthfully describing your work experience (especially regarding illegal conduct). If you’re asked under oath in a legal proceeding, you must tell the truth even if the agreement says not to.
3. Non-Compete and Non-Solicitation Agreements
Sometimes severance agreements include restrictive covenants preventing you from:
- Working for competitors for a set period (non-competes)
- Recruiting former colleagues (non-solicitation)
- Using customer lists or trade secrets (legitimate restrictions)
California strongly disfavors these restrictions because they prevent workers from earning a living. A non-compete preventing you from working for any competitor for two years is likely unenforceable and unenforceable as against public policy. Non-solicitation clauses (preventing you from recruiting former colleagues) are evaluated more carefully. Courts may enforce narrow non-solicitation agreements, but only if they protect legitimate business interests and are reasonable in scope and duration. If you’re offered a severance agreement with a two-year non-compete, push back. California courts will likely strike it down anyway, but you want to avoid the legal fees and hassle of fighting about it later.
4. Mutual Non-Disparagement
Watch for “mutual” non-disparagement clauses where both parties agree not to say negative things about the other. While mutual clauses seem fair, they can prevent you from discussing your experience with future employers or defending yourself publicly.
5. Insufficient Severance
California law does not specify how much severance is “fair.” An employer could offer one week of pay and call it complete. Before signing, consider:
- How long you’d typically be employed in this role
- How difficult it will be to find new work
- Your financial obligations
- Industry standards for similar roles
How to Negotiate a Better Severance Agreement
You have more leverage than you might think. Here’s how to negotiate:
1. Don’t Sign Immediately
Use the full five-day review period (or 21/45 days if over 40). Take time to understand what you’re signing.
2. Consult an Employment Lawyer
Before signing, talk to an attorney. Many offer free consultations or work on contingency for severance reviews. An attorney can:
- Explain which claims matter most in your situation based on your specific circumstances
- Assess whether the severance amount is reasonable for your industry, role, and tenure
- Identify problematic language that could cost you money or freedom later
- Suggest realistic changes to propose that employers often accept
This is one of the best investments you can make when facing a severance decision. An attorney might identify wage and hour violations, discrimination claims, or other issues that increase your leverage in negotiations. They can also explain whether staying silent through non-disparagement clauses limits your ability to get references from former employers—an important consideration for your next job search.
3. Make a Counter-Offer
If the severance package seems low, propose a higher amount. Employers often expect negotiation and build in room for it.
You can also propose modifications to the agreement language, such as:
- Removing non-compete clauses
- Narrowing the scope of the release
- Adding a reference or neutral job review
- Extending health insurance coverage
4. Ask for Consideration of “Knowing and Voluntary”
Emphasize that you want the agreement to be both “knowing” (you understand it) and “voluntary” (you’re not coerced). This strengthens your position.
Request additional time if you need it. Request that your attorney be allowed to review the agreement. These reasonable requests often indicate good faith.
5. Get Important Changes in Writing
If your employer agrees to modify the agreement, insist on written changes before you sign. Verbal promises don’t count.
6. Understand Your Timeline
If you’re over 40, you have 21 days (or 45 in a group termination). Use it. If you’re under 40, you have five business days. Don’t rush.
When Not to Sign a Severance Agreement
In some situations, you should seriously consider not signing:
- The severance is minimal compared to what you’d earn in future employment or compared to how long you worked there
- You know you have a strong legal claim (discrimination, wage theft, wrongful termination) and you need to preserve your right to sue
- The agreement includes unreasonable restrictions like a non-compete that would prevent you from earning a living in your field
- Your employer is pressuring you to sign before you can review it or consult a lawyer (this is a red flag)
- The agreement contradicts what your employer verbally promised about your separation or severance terms
- You suspect the employer engaged in illegal conduct that affected you or your co-workers
Not signing means you lose any severance offered, but you preserve all your legal rights. Sometimes that’s the right choice. If your employer has violated labor laws or discriminated against you, the value of preserving your right to sue may far exceed the severance they’re offering. This is exactly why consulting an attorney before signing is critical—they can help you assess whether the trade-off is worth it.
Key Takeaways
A California severance agreement is a contract where you trade money for the right to sue. Before signing:
- Understand what you’re waiving. You’re giving up most legal claims related to your employment.
- Know what you can’t waive. PAGA claims, wage claims, unemployment benefits, and the right to report crimes are protected.
- Use your review time. Take the full five days (or 21/45 if over 40) to review the agreement and consult a lawyer.
- Negotiate. Severance packages and agreement terms are often negotiable.
- Get everything in writing. Verbal modifications don’t count.
Your severance agreement will affect your financial security and legal rights. Treat it with the seriousness it deserves. When in doubt, consult with an employment lawyer before signing.
Internal Links & Resources
Parent Hub: [[California – Employment Contracts]]
Related Topics:
- [[California – Wrongful Termination]] – Understand your protection against illegal firing
- [[California – Workplace Discrimination]] – Know what discrimination claims you have